CMG Information Services(Nasdaq: CMG) is a direct-marketing service company as well as an investor in Internet companies. CMG, or College Marketing Group, began in 1968, operating two bookmobiles selling books at college campuses on behalf of educational publishers. Current Chairman, President, and CEO David Wetherell bought the company in 1986 and took it public in 1994. He now owns roughly 24% of CMG. In 1995, the company created a subsidiary, CMG@Ventures, dedicated to developing Internet-related companies. CMG has taken companies such as Lycos (Nasdaq: LCOS) and GeoCities (Nasdaq: GCTY) public, and sold other ventures to the likes of Microsoft (Nasdaq: MSFT) and America Online(Nasdaq: AOL).

TMF: In The Wall Street Journal today, there's an article about your latest investment, Raging Bull, a financial message board website. How did you come to the decision to invest in an upstart run by three college students?

Wetherell: We saw a unique positioning for that type of technology that had not been taken advantage of before. We had approached the people at Raging Bull to see if they were open-minded with respect to taking that position, and they were, and we wanted to ascertain if they were open to our bringing in management who knew how to run a company and build a company to assist them. So we moved forward with it.

TMF: In the Journal article, you're quoted as saying there's "no doubt in [your] mind that [you] can topple the competition." How will you be able to do this with a forum that now has just 15,000 users?

Wetherell: I never said we would topple the competition.

TMF: Oh, it's a misquote?

"We are a service and operations company as well as an investment company."

Wetherell: Yes, and there's no doubt in my mind that Raging Bull can secure a strong position.

TMF: Well, switching gears. With the company's roots in book marketing, do you view CMG as more of a direct marketer or more as an Internet venture capital company?

Wetherell: Well, it's partly an Internet venture capital company and also a set of operating business units. We have two groups: the @Ventures side of the business, and we have an Internet group of companies that we have incubated internally. We are a service and operations company as well as an investment company.

TMF: How does your business break down in terms of revenue, and do you see that mix changing over time? That is, how do the various units contribute to the company's revenue? What are the biggest contributors?

Wetherell: Our operating business units are at about $28 million in revenue, I believe. Today [the biggest contributor] is in the service side of the business. SalesLink, our fulfillment services company, has the largest share. The Internet side of the business is the fastest-growing revenue segment we have from a percentage-growth-rate basis, and we see that continuing to be the fastest growing portion of the business in the years to come.

TMF: Do you see that becoming your main business down the line?

Wetherell: Yes, it will be the largest share of revenue. It will be the main orientation, even with SalesLink, it's our main orientation. The reason we have a fulfillment business is we think it's a very important component to commerce on the Web. It's getting the product into the people's hands. A lot of businesses that are starting on the Web never had brick-and-mortar distribution and fulfillment before and need it. For instance, reel.com, the largest video store on the Web, didn't have any video stores and inventory, and their single biggest challenge in starting the business is fulfillment. We think that that's going to be true of thousands of businesses that are getting on to the Web.

TMF: Which ventures do you plan to take public in the next six to 12 months?

"[In valuing Internet companies], we look at the fundamental metrics surrounding the business: opportunity to capture a lot of audience, lots of page views, lots of eyeball time, traffic, and the ability to maybe target that eyeball time."

Wetherell: We have not announced any plans. We have consistently mentioned those which have the highest probability in the next 18 to 24 months, and those include Silknet [Software], SalesLink, Planet Direct, NaviSite [Internet Services], NaviNet, Engage Technologies -- there are a few others. There's a host of companies, and it's always hard to predict where companies are going to be 18 to 24 months down the road.

TMF: Do you think that this isn't the best atmosphere right now for IPOs?

Wetherell: Today's a very bad day. (Laughter.)

TMF: So you won't do one today.

Wetherell: None today.

TMF: Do you prefer spinning off companies or selling them directly to another company as you did recently with reel.com?

Wetherell: We don't have preconceived notions as to whether the company's going public or going to be a sale. A lot of that's going to be dictated by unforeseen factors: market conditions, people who approach us, firms that have an interest and make proverbial offers that we really shouldn't refuse, as was the case with PlanetAll and reel.com.

TMF: What do you think are the advantages of going one way or the other?

Wetherell: It varies across the board. In some situations like reel.com, there was a strategic partner for reel that could significantly increase the margins of the business and the traffic to their site by leveraging their own customer base and purchasing power. We chose not only to just sell it to them but to invest in the parent company that was acquiring reel.com. The combination is very powerful. We also saw a longer-term play into the video-on-demand business, and we were also encouraged by the partners that came along with us that had been investors in reel.com -- including [Microsoft co-founder] Paul Allen, Intel (Nasdaq: INTC), and Scott Beck, who had been a co-founder and vice chairman of Blockbuster.

TMF: In your view, which of your Internet ventures have the highest growth and profit potential? And are there any hidden gems that we should know about?

Wetherell: Certainly the ones that are already public are pretty well known and acknowledged -- I mean, high growth potential, that's Lycos and GeoCities. But there are a number that are growing very quickly and have strong positions -- Planet Direct, Engage, NaviSite, NaviNet within our Internet group. In the @Ventures group, Chemdex, Critical Path, Visto, and Vicinity are probably the furthest along in their business models, but there are a number of others, not to leave them out�

TMF: I suppose the short answer would be all of them.

Wetherell: No, there are quite a few I didn't mention. Oh, there is one I didn't mention and I should have, and that's Parable.

TMF: There's much debate over how to value Internet companies. As an investor, how do you figure out how much an Internet venture is worth?

Wetherell: Since a lot of them don't have revenues when we invest, or they're really in the very early stages like in the case of Raging Bull, we look at the fundamental metrics surrounding the business: opportunity to capture a lot of audience, lots of page views, lots of eyeball time, traffic, and the ability to maybe target that eyeball time -- in other words, chat, though it generates a lot of page views and eyeball time, it's very difficult to target the audience because you're not really sure from an advertising perspective what kind of content your ad's going to be associated with, even though you may know something about the interests of the users. And there isn't good evidence that when people are in chat rooms they even look at the ads anyway -- they're really more busy reading the content of the chat rooms.

So we look at the dynamics of the website visit, the type of traffic, the quality and quantity of traffic, and the targetability. We also look at what kind of complementary fit there is with our other investments and internal Internet group of companies. If it's a complementary fit, we can leverage up the relationships we have with these other companies to help that investment and thereby help them increase the return on investment that we end up realizing.

TMF: Some of our readers have pointed out that Engage Technologies' Internet user profile database is a potential gold mine. How do you plan to use this database?

Wetherell: Well, we think that anonymous profiling of interests, which is what Engage lets you do across tens of millions -- and what we think will be eventually hundreds of millions -- of browsers, unlocks the revenue potential from the majority of page views on the Web today that carry no advertising. The top 10 websites today attract 54% of the advertising dollars spent on the Web, yet about better than two-thirds of their page views carry no ads at all because they don't know anything about their users -- they aren't targetable inventory.

Engage can let them unlock the revenue potential of the majority of their page views by letting them target users based on their interests. The way we are allowing them to do that is we have a centralized database of these profiles that these sites can access on a per-access basis to drive up the CPM rate that they can get from those page views. Also there's a licensing model whereby if sites want to install Engage and collect clicks and profile people on their own website, we'd generate revenue from that, but most of the revenue will be generated from the access to the interest profile database.

"Engage can let them unlock the revenue potential of the majority of their page views by letting them target users based on their interests."

TMF: Do you think this might raise concerns about privacy?

Wetherell: We think that Engage actually is a solution to privacy issues on the Web for marketers. The Web is the ultimate channel distribution for direct marketing in that it is interactive and you can understand the interest of the people. But Engage collects interest profiles anonymously -- in other words, we don't know who the user is, we have no way of knowing. We couldn't violate the user's privacy if we wanted to. And we think that's the right solution -- total protection of personal privacy, and yet allowing for customization and targetability.

Obviously, some people register for sites, like America Online(NYSE: AOL). One hundred percent of the people there that use American Online, America Online knows their name and address and credit card information. With Engage, there's no name, there's no address, there's no credit card information, there's no personally identifiable information whatsoever. Yet American Online with each click can target you based on demographic information, presence of children in your household, amount of income, what kind of car you drive -- a lot of stuff that I think is potentially a violation of privacy. I don't want people knowing all that about me. Yet I do want a meaningful, personalized experience on the Web. I do appreciate ads that are more relevant to my life than ones that are totally irrelevant.

So Engage enables that. If I go to a website and I type in a search for automobiles, it's likely I'm going to get an ad for Toyota or some other car company. Now that's targetability that I get just by typing in something. If I click on a link that is about automobiles, I will likely get an automobile ad. What's the difference from that and going to a link where there is no targetability and I get an ad that is customized to my interests based on what I've clicked on in the past? If I've clicked on cars a lot in the past, maybe I'm interested in cars, and I get a car ad in another link where there is no direct relation to cars, is that an invasion of personal privacy? No more so than if I type in Toyota in a search engine, and I get a Toyota ad.

I think Jesse Burr said it's about as much an invasion of privacy as someone trying to sell you shoe polish after you buy a pair of shoes. In other words, if you're picking up on somebody's interests and then trying to sell them something related to that interest, that's not an invasion of privacy because you don't know who the person is. It's an invasion of privacy if you have information on them that they didn't divulge, and you're selling it to someone else. We don't know who it is. We have no personally identifiable information.

TMF: CMG is quite a complex web of companies. Do you think the company is misunderstood by the investment community, and what are you doing to make the company more well-known on Wall Street and in general?

Wetherell: Is it misunderstood? Perhaps in some regards it is. I think a better categorization is it's not fully understood because there are 28 different business units, and many of them are private. Most of them are private, and so we can't fully divulge a lot of information. But to help them better understand it, we have been consistent in communicating at investor conferences and through our press releases as well as other forums for publicly disclosing information what our business model is.

I think the message is getting better and better understood. We're far better understood today than we were a year ago, and a year ago we were better understood than the year before that. I think the world is starting to understand more and more what it is we're all about and also how the pieces fit together.